Distressed Sales Climb to 10.8% Share as U.S. Office Vacancy Hits 19.9%
Early 2025 finds the U.S. office market dealing with an increase in distressed property sales and stubbornly high vacancy rates: First-quarter data in the latest office report from CommercialEdge confirms that the expected rise in distress has materialized, especially for properties in large cities, where demand has declined and leases are expiring. Specifically, by the end of March, the national office vacancy rate hit 19.9% — up 170 basis points from last year. That’s a situation directly linked to stagnant office usage, which, according to Kastle’s Back-to-Work Barometer, has remained around 54% for the last two years.
Although the total number of sales held fairly steady in 2024 (just under 2,400), the share of those deals classified as “distressed” shot up to 10.8%. These weren’t small deals, either: The average size of distressed properties sold in 2024 jumped 30% from the year before, averaging more than 200,000 square feet. Furthermore, distressed sales in downtown central business districts tripled compared to the prior year and nearly doubled in other urban areas. Although the situation stabilized somewhat in the suburbs, suburban properties still comprise half of all distressed office sales in 2024.
Looking at the start of 2025, total office sales volume reached $10.3 billion in the first quarter with the average property trading for $183 per square foot.
“We anticipate the trend of resolutions for individual office buildings being finalized to grow in 2025,” said Peter Kolaczynski, director, CommercialEdge. “With this, we expect distress numbers to tick upwards, along with an increase in repositioning and/or conversions occurring.”
Nationwide, average asking rents (full-service equivalent) sat at $33.42 per square foot in March, a 4.9% increase from the year before. However, on the supply side, the pipeline of new development continues to shrink: Office construction starts had already nosedived in 2024 (down to just 11.9 million square feet for the entire year), and Q1 2025 saw only another 2.6 million square feet break ground.
At the very least, this slowdown should offer some breathing room for markets struggling with weak demand. As of March, the total amount of office space under construction nationwide was down to 45.1 million square feet, representing just 0.7% of the existing stock.
For more information and a complete breakdown of the data, check out CommercialEdge’s original report.